William Byrnes' Tax, Wealth, and Risk Intelligence

FINCEN issued a Valentine today to the marijuana industry that may open the door to financial institutions bank accounts in states where growing and selling marijuana is legal under state law.  

Whether a financial institution will be willing to open such an account is another matter, as each account will require an Suspicious Activity Report (SAR) filing.  However,  FINCEN has created a low level of concern “Marijuana Limited” SAR filing that appears to allow a level of comfort regarding disclosure for the financial institutions and allowing FINCEN to track the number of marijuana business account openings.  

In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes:

1. verifying with the appropriate state authorities whether the business is duly licensed and registered;
2. reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
3. requesting from state licensing and enforcement authorities available information about the business and related parties;
4. developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
5. ongoing monitoring of publicly available sources for adverse information about the business and related parties;
6. ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
7. refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

“Marijuana Limited” SAR

A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole
Memo priorities or violate state law should file a “Marijuana Limited” SAR.  U.S. Department of Justice Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning marijuana enforcement under the CSA.

The Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. The Cole Memo notes that DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes that DOJ is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provides guidance to DOJ attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following important priorities (the “Cole Memo priorities”):

• Preventing the distribution of marijuana to minors;
• Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
• Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
• Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
• Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
• Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
• Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
• Preventing marijuana possession or use on federal property.

FINCEN Guidance http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf

Cole Memo: http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf

Department of Justice Memorandum: James M. Cole, Deputy Attorney General, U.S. Department of Justice, Memorandum for All United States Attorneys: Guidance Regarding Marijuana Related Financial Crimes (February 14, 2014).